Hello? Where's My Revenue?

The only people testifying more than ChoicePoint on Capitol Hill these days
seems to be state telecom regulators losing their Internet taxing powers.
The inherent interstate nature of the Web undermines their entire model.

Worse, official Washington seems to be embracing the notion.

Conceived as the states' stake in the federal government's quasi-monopoly
arrangement with the pre-breakup AT&T, public utility commissions (PUCs) are
powerful political entities.

Their regulatory and taxing authority over the plain old telephone system
(POTS) sends tens of millions of dollars every year to state coffers. They
are the last-mile regulators.

That fat cash flow, however, appears to be coming to an end.

Last year alone, the Federal Communications Commission (FCC) ruled that IP
telephony is exempt from state and local taxes. To drive home the point,
Sen. John Sununu (R-N.H.) introduced a bill to exempt all IP services from being taxed.

The legislation failed, but the concept carried over.

Later this year, the
FCC is expected to complete its lengthy review of the regulatory status of
all IP services. Ominously for the states, the inquiry began with an
assumption of a light regulatory touch by the feds only.

If that's not bad enough news from Albany to Sacramento, Congress is kicking
the tires of a possible rewrite of the 1996 Telecommunications Act. That
cannot be good news from a deregulatory-minded Congress.

That giant sucking sound you hear is the coming loss of state dollars and
controls to the federal government when it comes to the Internet.

"Local government believes that federalization of all IP services would not
serve the public interest and would violate the principle of network
neutrality," Ken Fellman, the mayor of Arvada, Colo., recently told a
Congressional subcommittee.

Diane Munns, president of the National Association of Regulatory Utility Commissioners, told the same panel, "Ultimately, decisions about
jurisdiction and oversight should be linked not to the particular technology
used, but to the salient features of a particular service."

In other words: Voice over IP , which to state regulators is a
phone service no matter the delivery platform. State PUCs know a little bit
about wireline telephone service, having made it the third-most heavily
taxed commodity in the U.S. behind alcohol and tobacco.

Wireless telephone service has fared no better with the states. The typical
cell phone user faces almost a 17 percent total tax piled on top of the
monthly bill.

"We believe that like services should be treated alike, and certainly services
that compete with one another in the eyes of the consumer should face the
same government obligations," Munns said. "Local governments want to ensure
that we can continue to require that social obligations of providers be met
and that consumers are protected."

Among those obligations that states say they can handle better than the
federal government are emergency 911 services and the Universal Service Fund
(USF), a tax placed on every landline phone connection to promote
communications in poor, rural and underserved parts of the country. The USF
tax currently does not apply to VoIP services.

"Despite news articles that would lead one to believe everyone in the United
States has a computer with a broadband connection, the simple fact is only
30 million Americans have broadband," John Perkins, the Consumer Advocate of
Iowa, told Congress. "It is essential not to forget the vast majority of
Americans, especially in rural areasstill rely on POTS to communicate. In
our rush to embrace these new technologies, we should keep them in mind."

Currently, both federal and state laws create distinctly different
regulatory treatment for telephone, cable, satellite, wireless and Internet
services. The 1996 Telecom Act mandates rules to foster competition within
each technology. VoIP and the other IP services that will follow flatten
that "silo" model.

Without a silo, what's a PUC to do?

"In all of this, it falls to policy-makers not to forecast the next wave of
innovation but to look out for consumers and set fair rules of the road that
foster competition and allow the market to allocate resources efficiently,"
Munns said.

Surprisingly, not all state regulators are fighting what appears to be the
inevitable loss of state telecom revenue and power.

According to Charles Davidson, a member of the Florida Public Service
Commission, too many states are "attempting to burden the new technologies
with old rules designed to forge competition in the monopolized wireline
telephony market."

Davidson added that those states are seeking to preserve a regulatory model
that is "increasingly obsolete."

"Uncertainty as to the regulatory treatment of IP-enabled technologies -- and
efforts to pigeonhole new technologies into old regulatory constructs -- will
serve primarily to delay the development and deployment of these
technologies," he said.